During the period automotive history between the end of the muscles car era, at the height of the downsizing of vehicles, and the entry of the SUVs as the major preference of consumers; when the small cars whether sports sedans, or coupes are the flagship of car manufacturers, the Toyota Paseo entered the scene. As a 1992 model, the Paseo was introduced in 1991 to replace the discontinued Corolla GTS and SR5. It was based on the Tercel subcompact sedan wheelbase, but equipped with a more powerful engine and design unique to its predecessor.

The low-priced two-seater hatchback was comparable to the Toyota Celica but in a 100 horsepower engine with the addition of dual camshafts coupled with a 5-speed manual transmission as a standard and an optional 4-speed automatic. A year after it was offered with a driver-side airbag with the antilock braking became optional. Changes were also made in 1994 with the added passenger seatbelts automatic-locking retractors. Paseo also switched to CFC-free refrigerant for its optional air conditioning. In 1995, the Toyota Paseo was sold in 93hp engine in the California state due to the California-level emissions requirements while the 100hp engine remained in the rest of the country.

Two years before the end of the Paseo, it was reshaped with the by installation of dual airbags. Restyling include smoother nose, larger rear quarter windows, and a more shapely tail. The interior remained generally the same except for the dashboard. During its last year the Paseo was offered in convertible.

In less than a decade of Paseo's production, the vehicle was one of the choices for a low-priced small sports car. The Paseo was fun, fast, and smooth.